Biodiversity loss and ecosystem degradation are not just environmental concerns, they are material financial risks. Our latest research with FTSE Russell shows how these nature-related risks directly affect sovereign debt and creditworthiness, through channels such as agriculture, disaster resilience, and overall economic stability.
A Three-Pillar Framework for Sovereign Analysis
To help investors and policymakers, we introduce a new methodology built on three pillars:
1. Impacts: A country’s pressure on biodiversity (emissions, land use change, pollution).
2. Dependencies: How much its economy and population rely on healthy ecosystems (agriculture, water, natural resources).
3. Policy: The strength of governance in protecting and restoring nature (conservation laws, adaptation strategies).
Nature Risk-Adjusted Sovereign Index
Our nature and biodiversity risk-adjusted sovereign index—tilted using these three pillars—outperforms the traditional World Government Bond Index (WGBI) in backtests, with higher returns and only modest increases in volatility.
Why It Matters for Nature Consulting and Investors
This work pioneers the integration of biodiversity and ecosystem risks into sovereign bond indices, moving beyond corporate ESG frameworks. By leveraging multi-source datasets (satellite imagery, biodiversity databases) and a quantitative tilt methodology, the index gives a nuanced, forward-looking view of sovereign credit.
For investors and those seeking expert nature consulting services, this research demonstrates how integrating nature-related risks into financial analysis not only strengthens resilience to climate shocks, food insecurity, and water stress—but can also deliver competitive returns aligned with global sustainability goals.
